Are you thinking of becoming a landlord? Such an investment is certainly attractive, given that it could generate a steady income from rent year after year. However, it comes with both advantages and disadvantages. The pros and cons should be carefully examined before moving forward. Here are just a few of the things you should consider – both good and bad – before going down that road.
Pro: Steady income
According to The Steady Dollar, the number one advantage of owning a rental property is the fact that those monthly rent checks you get from tenants provide you with a steady income stream that should more than cover your expenses from the month. However, they also caution that just because you have a property doesn’t mean it’ll necessarily have 100% occupancy, so allow for some fluctuation. Still, renting out units in a property in good condition is considered a very reliable way of generating income.
Con: Bad tenants
Sadly, not all tenants are created equal. While many will be respectful, pay their rent on time and keep the property in good condition, there are also plenty of bad tenants, who’ll be late on rent and could potentially cause damage to the unit. You’re probably thinking that the solution is as simple as an eviction, but hold on. Evicting a tenant, even a bad one, is a complicated, time-consuming process, and should be handled with caution.
Pro: Less market volatility
For many, an income property can be a great alternative to stocks and bonds and other traditional investments due to the volatility of the stock market. By contrast, a well-maintained income property in a good area can generate steady profits for years. They also note that successful real estate investors rarely sell their income properties, unless to upgrade to a larger one or retire.
Con: Not a passive investment
Which brings us to the next con – it’s not a passive investment. If you buy a rental property, a significant amount of your time will have to be devoted to it. Depending on your circumstances, you may even need to hire a full-time property manager or a property management firm that will do it for you. On average, All Property Management estimates that this will cost you between 8-12% of the monthly rental value of the property, plus expenses.
Pro: Property Value Growth
Think of the lucky income property owners in booming, red-hot real estate markets. With a huge chunk of Americans opting to rent instead of buy, Forbes reveals that 2018 is the best time ever to become a landlord. Your property values could skyrocket over time, which is why the magazine states it’s an excellent investment.
Con: Annual expenses
All that said being a landlord isn’t cheap. For one thing, there will always be repairs to make. A certain amount of investment in the property (which The Simple Dollar calls “Sweat Equity”) is necessary in order to keep it maintained. And then there are the fixed and variable expenses, including annual property tax, insurance, and unpredictable, major repairs that may be deemed necessary.
In the end, buying an income property can indeed be a terrific investment, but it’s one that also takes a lot of work. However, if you’re up to the challenge, it can prove to be a smart way of developing a sustainable income stream that could continue for years to come!